The West Texas Intermediate Crude Oil market plunged initially on Monday to reach down to the $100 region. This is a large, round, psychologically significant figure, and it’s worth noting that we had tested the bottom of the uptrend line. The uptrend line has offered quite a bit of support in the past, so “market memory” has to come into play somewhere in this area.
If we break above the highs of both Friday and Monday, then it’s possible that we could go looking to reach the 50-day EMA, which is near the $108 level. Breaking above that area could have the market challenging the $112 level. The $112 level is an area that I think would offer a bit of resistance as well, as it’s an area where we had broken down from. This is a market that I think will continue to be noisy regardless, especially as there are a lot of concerns as to where the global economy is heading. The fact that we could be going into a recession weighs upon the idea of pricing oil, as it should drive down demand.
On the other hand, we still have all of the nonsense coming out of Russia and Ukraine, and questions about supply. Beyond that, the Americans have crippled their own industry, so at this point, there are further concerns about supply. I think the recent selloff has been rather difficult, and it’s likely that we will continue to see a lot of noisy behavior, and I think we see a lot of choppiness coming our way, so if we were to break down below the 200-day EMA at the $96 level, then it’s likely that we will flush lower. However, it does not look like it’s going to be easy to do in this scenario, so I think we’re just going to continue to go back and forth in a very volatile turn of events.
Keep your position size small but recognizes that the market does seem to favor the downside more than anything else in the short term. Longer term, we need to make bigger decisions and I think it’s likely that we will eventually see a bigger move in one direction or another. The shape of the candlestick is a hammer, so we may have a little bit further to go before we start selling off again.
